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4 Ways a Great Advisor Can Protect Your Startup Investment

These are volatile waters, and it's dangerous to navigate them alone. Working with a trusted advisor often is a safe (and lucrative) way for startups to traverse the stormy seas and wind up on higher ground -- which benefits not only the startups, but also their investors.
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By: Kelli Richards

Last year marked the highest annual total of venture capital funding since 2001, and with $47.3 billion in investments, this represents a 62 percent year-over-year growth. The Kauffman Startup Activity Index rose in 2015 for the first time since 2010, and angel investors are reaping the benefits, seeing returns of roughly 2.5 times their investments.

But there's another side to this story: The average burn rate of Silicon Valley companies also is peaking, and many fear the tech bubble is about to burst. Successful startups are in the minority, and many VC firms have been unable to recoup their investments.

These are volatile waters, and it's dangerous to navigate them alone. Working with a trusted advisor often is a safe (and lucrative) way for startups to traverse the stormy seas and wind up on higher ground -- which benefits not only the startups, but also their investors.

Here are four of the biggest perks of working with a seasoned advisor:

1. Navigating the New Investment Landscape

Changes in the investment landscape have increased the need for knowledgeable and connected advisors. Investment managers used to choose which startups were funded, but now we're seeing delayed IPOs and smaller and more frequent funding rounds. Individuals can invest earlier in startups, and companies are minimizing uncertainty and reducing risk by investing in later rounds.

This shifts the burden of risk from investment managers to individuals. Now it's up to investors to vet and select startups. That can be a tricky business, as roughly three-quarters of venture-backed firms don't return investors' capital, and an estimated 25 percent to 30 percent fold altogether. An advisor can help investors select startups with the best chance of succeeding on the front end and support the companies in their existing portfolios to increase their chances for successful exits.

2. Offering Industry-Specific Expertise

A seasoned advisor can help startups avoid common mistakes such as misspending, failing to file patents, poorly allocating resources, misreading the market, and hiring the wrong people. But many also have rich, deep expertise in a specific industry, and that allows them to provide targeted advice and powerful strategic connections. For example, I focus on the convergence of entertainment and tech, so I'm often a resource to VCs who invest in the consumer-facing digital music/media/entertainment sector (and their startups).

Many VCs take on an advisory role themselves and think they don't need another expert. But if you invest in an industry with which you're unfamiliar, you might overlook important industry-specific considerations. A specialized advisor will ensure you consider all relevant factors, some of which are unique to a given sector and often are nuanced.

3. Giving You Access to a Wide Network

Hiring an advisor adds more than one person to your team; it gives you access to that advisor's entire network. This high-level group can offer strategic insights, accelerate a startup's success, generate buzz, facilitate deals, and lend credibility.

For example, Shervin Pishevar -- a fellow advisor and "super connector" -- is known for making connections between technology and entertainment. Like me, he offers distinct value because he understands both industries and has powerful connections at the intersection of Silicon Valley and Hollywood.

4. Ensuring a Faster, More Profitable Exit

The ultimate goal of any startup investment is a profitable exit. Consider serial entrepreneur Robert Flynn: He launches and runs fledgling startups and profits when they fly the nest. Some of his most successful exits include sales to CBS Interactive and Ericsson, and he uses the outcome of these lucrative sales to fund future projects.

A great advisor will accelerate the exit process and maximize ROI. By advising on strategic moves, facilitating key partnerships, and generating positive buzz, advisors help startups make a bigger impact in the marketplace -- often faster and with better traction. This eventually translates into bigger paychecks for entrepreneurs and VCs alike.

Although startup investments can yield high rewards, they also can result in devastating losses. The startup landscape is constantly shifting, and trying to navigate it alone is a fool's errand. To protect your investment, ensure that you're working with a relevant, trusted, and seasoned advisor.

Kelli Richards is the CEO of The All Access Group. She facilitates strategic business opportunities in digital distribution among innovative technology companies, talent and media companies, and brands to foster new revenue streams and deliver compelling consumer experiences. As a trusted advisor, she transforms the quality of people's lives. Kelli is also the author of a bestselling e-book, "The Magic and Moxie of Apple: An Insider's View."

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